TY - JOUR
T1 - Asset Price Dynamics with Limited Attention
AU - Hendershott, Terrence
AU - Menkveld, Albert J.
AU - Praz, Remy
AU - Seasholes, Mark
N1 - Publisher Copyright:
© 2021 The Authors 2021. Published by Oxford University Press.
PY - 2022/2/1
Y1 - 2022/2/1
N2 - We identify long-lived pricing errors through a model in which inattentive investors arrive stochastically to trade. The model's parameters are structurally estimated using daily NYSE market-maker inventories, retail order flows, and prices. The estimated model fits empirical variances, autocorrelations, and cross-autocorrelations among our three data series from daily to monthly frequencies. Pricing errors for the typical NYSE stock have a standard deviation of 3.2 percentage points and a half-life of 6.2 weeks. These pricing errors account for 9.4$\%$, 7.0$\%$, and 4.5$\%$ of the respective daily, monthly, and quarterly idiosyncratic return variances.
AB - We identify long-lived pricing errors through a model in which inattentive investors arrive stochastically to trade. The model's parameters are structurally estimated using daily NYSE market-maker inventories, retail order flows, and prices. The estimated model fits empirical variances, autocorrelations, and cross-autocorrelations among our three data series from daily to monthly frequencies. Pricing errors for the typical NYSE stock have a standard deviation of 3.2 percentage points and a half-life of 6.2 weeks. These pricing errors account for 9.4$\%$, 7.0$\%$, and 4.5$\%$ of the respective daily, monthly, and quarterly idiosyncratic return variances.
KW - G12
KW - G14
UR - http://www.scopus.com/inward/record.url?scp=85125130673&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85125130673&partnerID=8YFLogxK
U2 - 10.1093/rfs/hhab045
DO - 10.1093/rfs/hhab045
M3 - Article
AN - SCOPUS:85125130673
SN - 0893-9454
VL - 35
SP - 962
EP - 1008
JO - Review of Financial Studies
JF - Review of Financial Studies
IS - 2
ER -